Introduction
Governance is a multi-faceted phenomenon that involves the parent organization’s management, the project’s suppliers/contractors, and the collaboration between them to achieve the shared outcome. In its turn, project governance can be defined as “the use of systems, structures of authority, and processes to allocate resources and coordinate or control activity in a project” (Joslin and MĂĽller, 2016). In other words, it is a process of project administration based on a specific system of procedures and rules. The project governance is not the same as organizational governance (the daily one) since the organizational structure is usually not appropriate for the program’s successful delivery. This managerial approach allows a company to create a specific decision-making framework that promotes alignment and accountability between the project managers, board of executives, internal stakeholders, contractors, and other interested sides.
Every public sector project has a wide range of stakeholders, including governmental entities, the government itself, public service users, sponsors, and the organization’s members. They are spread throughout the project’s scope, and project governance provides tools to consolidate all these stakeholders for efficient decision-making. This approach also helps to assess available resources and efficiently use them to achieve the desired goals. As stated by Sirisomboonsuk et al. (2017), project governance emerged as the framework within which decisions are made necessary for effective control and ultimate achievement of business objectives. Public sector projects are usually of high importance as they can improve local citizens’ lives and enhance the government’s efficiency.
Transitioning to modern financial management techniques driven by the government can be an excellent example of a public financial project. Businesses and people worldwide continue to request greater transparency, accountability, and usefulness of financial reporting information (Cohen and Karatzimas, 2017). For this reason, the majorities of states strive to reform and adapt their old-fashioned accounting systems. Financial statements should provide useful and timely information assisting users in forecasting and planning. The usefulness of accounting information depends on the accounting basis on which it was received (cash vs. accrual basis). Such information influences enterprises’ decision-making; thus, governments are also interested in the system’s improvement.
Nowadays, accrual accounting remains the most desired and optimized option in the eyes of policymakers, governments, and investors (recommended by the OECD and the IMF). The main benefits of accrual accounting are efficient management of public liabilities and assets, fiscal policies sustainability, and a better financial information system (Cohen and Karatzimas, 2017, p. 97). Accrual financial statements enable users to compare public resources accountability and financial performance in an efficient way.
However, many research pieces undermine its superior position, pointing at the importance of a state’s technical and cultural background readiness for its successful application. If the latter is not prepared, there is a high risk of project failure due to the new system’s complexity leading to loss of financial control. Haider, Aamir, and Khan (2019) point to a lack of skills, information, knowledge, prejudice regarding the new accounting system, and low education level among the main obstacles to adopting modern accounting standards. The shift towards accrual basis in Greece saw a moderate improvement of financial information, despite the government’s high expectations (Cohen and Karatzimas, 2017). Various user groups rated the system differently as received information needed several adjustments to become usable.
In terms of the UAE and MoF initiatives, compliance to the new standards is expected to be high; nevertheless, it should be considered that financial reports here are also subject to Islamic standards, such as paying the Zakat. This paper is focused on program governance implementation of the Ministry of Finance (MoF). The governance structure and related activities of MoF would be analyzed in their efforts to finalize the Accrual Accounting Program.
Literature Review
Factors of Successful Project Governance
In general, program management effectiveness highly depends on a set of overlapping elements such as project management techniques, tools, structure, the competence of project team members, alignment with IT governance, and effective top-down communication. Sirisomboonsuk et al. (2017) found a positive correlation between project governance and project performance. Project performance is a complex process that requires achieving the earlier set of objectives under changing conditions. The so-called iron triangle that consists of cost, time, and scope elements is the main project performance measurement criteria (Sirisomboonsuk et al., 2017). The tripled constraint of meeting demanded quality, planned budget, and scheduled time define the project management success, whereas achievement of strategic goals and project objectives characterize project success.
Different researchers and authors indicate quite similar success/failure factors of project governance initiatives. For instance, Joslin and MĂĽller (2016) present and discuss the model for measuring project success devised by Khan, Turner, and Maqsood (4). It has five dimensions that incorporate and organize both soft and hard factors: project efficiency, project impact, organizational benefits, stakeholder satisfaction, and future potential. Khan et al. (2019) discuss concepts of good project governance from the project management perspective. The list consists of active participation (timely decision-making), contract fairness (the rule of law), transparency, timely execution of responsive decisions, equality of stakeholders, optimal utilization of resources, and accountability (user satisfaction/public participation). Good project governance also requires monitoring and control to assess stakeholders’ satisfaction and strategic goal achievement continually.
Public projects or megaprojects aiming to bring any social change should consider the opinions and values of external stakeholders to be successful. Derakhshan, Turner, and Mancini (2019) insist that stakeholders should be aware of the project’s value, making them active decision-makers and enhancing the trust and loyalty towards the organization. Khan et al. (2019) stated that infrastructure projects usually have poor performance due to deficiencies in organizational structure, project governance structure, timelines, and communication between competing sides.
As Zwikael and Smyrk (2015) explain, the accountability for benefits realization, instead of the traditional focus on project efficiency, positively affects project performance. This paper also suggests appointing a project owner for each program under the generic project governance model. Traditionally, project managers are funder’s agents; nevertheless, the authors insist on top-down accountability for realizing benefits starting from the funder and ending with the project manager. This model sees a project manager as the leading agent of the project owner who has separated roles. Good project governance requires reliable sponsors, a project management plan, enhanced communication/clear reporting, and engaged stakeholders impacted by the project.
Principles of Project Governance
The main task of project governance is to create a thoughtful decision-making framework needed to govern any project or program. The structure of project governance is also crucial for the program’s success. Management can meet these characteristics by applying four fundamental principles of project governance proposed by Garland (Khan et al., 2019, p. 4). The first principle is the separation of stakeholders from project ownership. A specialist party that is not initially a stakeholder to the project is the best candidate to own the project. A Governance of Project Committee usually appoints project owners, who work under precise terms and create Project Councils, which deal with stakeholder engagement and oversee the project’s overall performance.
Furthermore, stakeholder management should be separated from project decision-making to prevent time lagging and ineffective decision-making. The literature analyzed by Zwikael and Smyrk (2015) suggests that large committees transform into stakeholder management groups incapable of making timely decisions. Larger committees lose their role as project decision-making forums and play the role of stakeholder management forums instead. The third task is to separate organizational governance from project governance to minimize project decision layers (Khan et al., 2019). For instance, project governance puts key decision-makers out of the organization structure (into the forum) to avoid traditional hierarchical constraints. It helps prevent the situation when a person from the organization (outside the project) must approve the steering committee’s decision.
Hence, in such cases, the steering committee must be fully empowered, or such individuals should enter the project decision-making body. Ultimately, single-point accountability improves the speed and clarity of decision-making. The final principle suggests empowering the right person to be a leader and be accountable by the senior managers. Such individuals should be not only nominated; they instead must hold authority within the project.
Case Study
Overview of the Program
The Ministry of Finance (MoF) is the UAE’s central executive body, which devises and implements federal budgetary and financial policy. The agency currently deals with essential reform that will see the Federal Government using the accrual accounting framework instead of the cash basis. The program is aimed to optimize accounting within the state, improve financial planning, and implement the federal budget in line with modern international standards. According to the official web profile on the Accrual Accounting Program (Ministry of Finance, n.d.), this strategic initiative is designed to improve the management of federal financial resources innovatively and efficiently. Harmonization of national legislation and accounting practice to the field’s best designs that will see the Emirates among the world leaders in terms of public financial affairs management is its primary goal. The Emirates strives to become the first Arab country that implemented the accrual accounting approach along with the USA, Canada, France, UK, and other developed countries.
Legislative Phase
The federal government transition program set by Cabinet Resolution No (35/3/6) started in 2015 with a stage dedicated to law harmonization. The existing legislation, laws, and fees concerning accounting practices have been analyzed to decide their suitability to the accrual basis (Ministry of Finance, n.d.). After the gaps were identified, the ministry reissued the regulations and laws needed to prepare the government and country for further transition. The legislative phase resulted in the Cabinet Resolutions in 2017 on UAE Accounting Standards Guide on Accrual Basis and Accounting Policies and Procedures Manual on Accrual Basis.
The country has been operated on a cash basis (using the Federal Management Information System). MoF intended to transform its accounting practice to follow IPSAS (International Public Sector Accounting Standards) based on accrual accounting policies. The cash basis system is a cheaper and simpler option than the maintenance of accrual books (Gulf News, 2020). Nevertheless, accrual accounting is the best one to attract foreign investment because it provides a full representation of an organization’s actual profit compared to a cash basis. It also enables businesses to plan their activities in a timelier manner, as the system brings needed tools for easy forecasting.
Executive Phase
The work on this stage began right after law preparation in 2017. The executive phase was focused on implementing multiple sub-projects to prepare mainly the technical side of the transition (Ministry of Finance, n.d.). The Policies and Procedures were created by MoF in the legislative phase, whereas the FMIS configurations were enhanced during this phase to ensure compliance with the IPSAS. The list of activities consists of assessing and training federal employees, preparing financial statements, fixed assets records, and transition of expenses, obligations, and income balances (under the Federal Government ERP system). In other words, this stage involved the cooperation of different governmental bodies in preparing the financial system for the accrual basis of accounting transition.
Launch Phase
Phase one of the Accrual Accounting Program has been successfully launched in June 2020. As the Ministry of Finance revealed (2020), the transition to accrual accounting of governmental entities started in work-from-home mode due to Covid-19 restrictions. The Ministry of Community Development, the Federal Tax Authority, the UAE Space Agency, the Ministry of Economy, the Federal Customs Authority, and the Ministry of State for Federal National Council Affairs were among the first adopters (Gulf News, 2020). MoF management collaborated with and led 36 different federal entities during the transition.
Analysis
Governance Structure and Model
In general, MoF has a comprehensive and well-considered governance structure. The project structure was agreed upon and included in the detailed Project Management Plan. The Higher Committee, headed by HE, the Minister, plays an oversight role in key projects and participates in the strategic discussion. The second Committee, one level lower, monitors project progress, deals with business case approval, project reporting, and identifies/addresses critical problems and risks. It is chaired by the HE Undersecretary and involves Heads of Departments, directors, and Assistant Undersecretary. Both committees meet twice a month to discuss the project status and address possible challenges. In its turn, the Change Control Board assesses the results of all changes before they are approved and moved to the production environment. The key stakeholders, who were identified at the beginning of the project, sign off every step of the project phases.
Moreover, all Project Managers under the governance structure are obliged to make regular updates on the project that are further reported to the mentioned committees. The periodic reports include clear information on current accomplishments, issues faced, risks identified, percent of completion, and other things that need senior management attention. The project Plan initiation process also defined the governance model for the program oversight. The oversight process has three pillars: Weekly Status (MoF Project Managers/Coordinators and consultants), Steering Committee (key stakeholders and sponsors; biweekly), and MoF Senior Management Committee (once a month).
Program Governance Practices
The MoF governance can be assessed based on the information studied and received from the interview with Ruddi Barooah, an experienced Project Manager in the Ministry of Finance. To start with, the Program Governance Plan clearly defines the overall project governance, vision, and goals of the project. Accrual Accounting Program was formally approved/signed-off as per the MoF protocol. The program success criteria were also defined: the number of governmental bodies who have successfully used the accrual accounting in their operational transactions. The successes will also be measured by the effectiveness of reports generated by the new financial system.
MoF created a comprehensive governance structure that provided continuous monitoring, reporting, and control over the program. As mentioned earlier, the committees deal with program risk and issue governance based on reports timely received from the Project Managers. In terms of program quality governance, the special team for Quality Assurance was established. Its obligations cover the control and validation of the specific steps per standard (during configuration and port configuration). Changes to the program were discussed in the Steering Committee meetings. The quality Assurance team also was appointed to conduct program periodic health checks. The project was initiated in 2015 and is now in the implementation stage (already launched). It has not been finalized until now; however, program closure is also covered in the plan.
Assessment of Program Governance Factors
The legislation environment was harmonized during the first phase of the program, following Policies and Procedures developed by MoF before the system changes. The policy is in line with international accounting standards (IPSAS) that were adapted to local needs. In terms of the decision-making hierarchy, the project clearly defines the authority to decide and the authority to make a recommendation. The MoF governance can be characterized as optimized as it has needed checks and balances within its structure where roles are clearly identified despite a large number of stakeholders.
The portfolio governance management is convincing as the project portfolio is aligned to UAE Vision 2021 and its Strategic Objectives. The former’s leading goal is to improve infrastructure that will assure the country’s progress in terms of global economic competition (Ministry of Finance, 2020). Regarding program delivery, the organization applied the waterfall model that initiates the next stage of program activities only if the previous phase’s deliverables are appropriate. Moreover, delivery is based on standard project management guidelines, including weekly reports, project baseline, document repository, and sign-offs. Contracting was also covered by MoF management using tenders to select needed vendors. Accrual Accounting Program has comprehensive risk management tools that allowed prompt and active management of failure risks. In terms of strategic importance, the project is essential because it involves multiple stakeholders and affects the Federal Government of the Emirates. MoF funded the project using the entity’s budget allocated by the government.
Recommendations
Following the analysis of MoF program governance, it should be noted that its governance structure is well-designed and allows following early mentioned project management principles. MoF is dealing with a large number of governmental bodies, including multiple governmental agencies of high importance. Nevertheless, I recommend enforcing the Steering Committee’s role, increasing its decision-making authority by adding all key stakeholders who approve further steps (to relieve the pressure caused by the organizational structure of MoF). The launch phase, especially in times of upheaval caused by Covid-19, requires an agile and well-timed execution of responsive decisions. Changes to the project should be made as soon as possible to avoid the risk of implementation failure.
As the program is currently in its launch stage, the main recommendation should be made regarding stakeholder engagement. The program managers need to continually assess the stakeholders’ satisfaction with technical solutions, guidelines, and federal financial systems applications. The Ministry of Finance should also continue to receive feedback from the federal entities, make timely adjustments, and train the end-users. Such activities would enhance collaboration among the stakeholders, as they would be fully aware of the program’s value. What is more, the small and medium-sized private businesses must be involved in the project’s final stages, especially IT ones. They usually found themselves unaware of how the new accounting systems work, thus unable to enjoy its benefits. Their proposals potentially can improve the final version of the accrual accounting system.
Conclusion
To conclude, program governance works as a comprehensive set of methods and systems by which a program strategy and its objectives are met. The literature review revealed that program governance usually positively affects the program performance contributing to successful implementation. The main criteria to measure project performance are the iron triangle (cost, time, and scope). Public project governance, which becomes more popular, should consider and engage both internal and external stakeholders. The deficiencies of project governance structure, organization structure, and the relationship between them constitute the main failure risks. Although some researchers have criticized the accrual accounting basis, it is the best accounting option based on international standards that significantly improves the usefulness of received financial data.
Following the analysis of the Accrual Accounting Program implementation by MoF, it can be stated that the federal entity successfully applied the program governance. The governance structure and model are well-defined and clear, including necessary committees. It also establishes continuous top-down decision-making and bottom-up reporting. The system is in line with the fundamental principles of project governance. In particular, it separates stakeholder governance from decision-making to improve the performance of the Steering Committee.
MoF also made impressive progress in reporting, monitoring, and controlling the program’s phases. Incorporation of IT-governance elements and focus on accountability for benefits realization are among MoF’s strengths. A large number of federal agencies are apparently happy to collaborate on Phase 2. In this regard, I recommend expanding stakeholder governance to avoid issues SME’s may face during further implementation of the Accrual Accounting Program. They should be provided with accounting information and training to effectively use the financial system, as there is a slight resistance to change and confusion among the Emiratis. Although the project is still in progress, its current project performance is promising.
Reference List
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